If you have employees, you must have an EIN. If you do not have an EIN, request one on Form SS–4, Application for Employer Identification Number. The instructions for Form SS–4 provide information on how to apply for an EIN by telephone, internet, fax, or mail. Form SS–4 is available from either the IRS or the Social Security Administration (SSA). See chapter 21 for information about ordering this form.

An employee who does not have an SSN should submit Form SS–5, Application for a Social Security Card, to the Social Security Administration (SSA). Form SS–5 is available from any SSA office or by calling 1–800–772–1213. It is also available from the SSA's website at www.socialsecurity.gov.

The employee must furnish evidence of age, identity, and U.S. citizenship (or lawful alien status) with the Form SS–5. An employee who is 18 or older must appear in person with this evidence at an SSA office.

You must verify that each new employee is legally eligible to work in the United States. This includes completing the Form I–9, Employment Eligibility Verification. Form I–9 is available from the Bureau of Citizenship and Immigration Services (BCIS) offices or by calling 1–800–870–3676. It is also available from the BCIS website at www.immigration.gov. You can contact the BCIS at 1–800–375–5283 or 1–800–357–2099 for more information.

You are required to report any new employee to a designated state new hire registry. Many states accept a copy of Form W–4 with employer information added. Call the Office of Child Support Enforcement at 202–401–9267 or visit its website at www.acf.dhhs.gov/programs/cse/newhire for more information.

Payments for the services of your child age 17 or younger who works for you in your trade or business (including a farm) are not subject to social security and Medicare taxes. However, see Nonexempt services of a child or spouse, later. Payments for the services of your child age 20 or younger employed by you in other than a trade or business, such as payments for household services in your home, are also not subject to social security or Medicare taxes. Payments for the services of your child age 20 or younger employed by you, whether or not in your trade or business, are not subject to federal unemployment (FUTA) taxes. Although not subject to social security, Medicare, or FUTA tax, the child's wages still may be subject to income tax withholding.

Payments for the services of your spouse who works for you in your trade or business are subject to income tax withholding and social security and Medicare taxes, but not FUTA tax. However, payments for the services of your spouse employed by you in other than a trade or business, such as payments for household services in your home, are not subject to social security, Medicare, or FUTA taxes.

Payments for the services of your child or spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for any of the following entities.

In these situations, the child or spouse is considered to work for the corporation, partnership, or estate, not you.

Payments for the services of your parent employed by you in your trade or business are subject to income tax withholding and social security and Medicare taxes. Social security and Medicare taxes do not apply to wages paid to your parent for services not in your trade or business, but they do apply to payments for household services in your home if both the following conditions are satisfied.

Wages you pay to your parent are not subject to FUTA tax, regardless of the type of services provided.

For social security and Medicare tax purposes, the crew leader is the employer of the workers if both the following requirements are met.

If the crew leader is the employer for social security and Medicare tax purposes, the crew leader is the employer for federal income tax withholding purposes.

For FUTA tax purposes, the crew leader is the employer of the workers if, in addition to the earlier requirements, either of the following requirements are met.

The farmer is the employer of workers furnished by a crew leader in all other situations. In addition, the farmer is the employer of workers furnished by a registered crew leader if the workers are the employees of the farmer under the common-law test. For example, some farmers employ individuals to recruit farm workers exclusively for them. Although these individuals may be required to register under the Migrant and Seasonal Agricultural Worker Protection Act, the workers are employed directly by the farmer. The farmer is the employer in these cases. For information about common-law employees, see section 1 of Publication 15–A.

The following wages are not subject to social security and Medicare taxes, even if you pay $2,500 or more to all your farm workers. However, these wages count toward the $2,500 test for determining whether other farm workers' wages are subject to social security and Medicare taxes.

See Circular A (Pub. 51) for more information on these exceptions. See Family Employees, earlier, for certain exemptions from social security and Medicare taxes that apply to your child, spouse, and parent.

An exemption from social security and Medicare taxes is available to members of a recognized religious sect opposed to insurance. This exemption is available only if both the employee and the employer are members of the sect.

For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.

Only cash wages paid to farm workers are subject to social security and Medicare taxes. Cash wages include checks, money orders, and any kind of money or cash.

Only cash wages subject to social security and Medicare taxes are credited to your employees for social security benefit purposes. Payments not subject to these taxes, such as commodity wages, do not contribute to your employees' social security coverage. For information about social security benefits, contact the Social Security Administration. Internet users can go to www.socialsecurity.gov for more information.

Noncash wages include food, lodging, clothing, transportation passes, and other goods and services. Noncash wages paid to farm workers, including commodity wages, are not subject to social security and Medicare taxes. However, they are subject to these taxes if the substance of the transaction is a cash payment.

Report the value of noncash wages on Form W–2 in box 1, Wages, tips, other compensation, together with cash wages. Do not show noncash wages in box 3, Social security wages, or in box 5, Medicare wages and tips (unless the substance of the transaction is a cash payment).

For 2004, the employer and the employee will each pay both the following taxes.

The limit on 2004 wages subject to the social security tax will be published in Circular A (Pub. 51). There is no limit on wages subject to the Medicare tax. All covered wages are subject to the Medicare tax.

If you would rather pay the employee's share of social security and Medicare taxes without deducting it from his or her wages, you may do so. It is additional income to the employee. You must include it on the employee's Form W–2 in box 1, but do not count it as social security and Medicare wages (boxes 3 and 5 on Form W–2) or as wages for federal unemployment (FUTA) tax purposes.

Generally, the amount of income tax you withhold is based on the employee's marital status and withholding allowances claimed on the employee's Form W–4. In general, an employee can claim withholding allowances on Form W–4 equal to the number of exemptions the employee will be entitled to claim on his or her tax return. An employee may also be able to claim a special withholding allowance and allowances for estimated deductions and credits.

Do not withhold income tax from the wages of an employee who, by filing Form W–4, certifies that he or she had no income tax liability last year and anticipates no liability for the current year.

You should give each new employee a Form W–4 as soon as you hire the employee. Have the employee complete and return the form to you before the first payday. If the employee does not return the completed form to you, you must withhold income tax as if the employee is single and claims no withholding allowances.

You should make the 2004 Form W–4 available to your employees and encourage them to check their income tax withholding for 2004. Those employees who owed a large amount of tax or received a large refund for 2003 may want to file a new Form W–4.

You can use one of several methods to determine the amount to withhold. The methods are described in Circular A (Pub. 51), which contains tables showing the correct amount of income tax you should withhold. Circular A (Pub. 51) also contains additional information about income tax withholding.

Generally, you are not required to withhold tax on payments for services to individuals who are not your employees. However, you may be required to report these payments on Form 1099–MISC, Miscellaneous Income, and to withhold under the backup withholding rules. See Information Returns in chapter 2 for information.

You must provide notification about the EIC to each employee who worked for you at any time during the year and from whom you did not withhold any income tax. However, you do not have to notify employees who claim exemption from withholding on Form W–4.

You meet the notification requirement by giving each employee any of the following.

For more information about notification requirements and claiming the EIC, see Notice 1015, Have You Told Your Employees About the Earned Income Credit (EIC)?.

Report withheld income tax and social security and Medicare taxes on Form 943. The 2003 form is due by February 2, 2004 (or February 10 if the taxes were timely deposited in full).

Generally, you must deposit both the employer and employee shares of social security and Medicare taxes and income tax withheld (minus any advance earned income credit payments) during the year. However, you may make payments with Form 943 instead of depositing them if you accumulate less than a $2,500 tax liability during the year (line 11 of Form 943) and you pay in full with a timely filed return.

For more information on deposit rules, see Circular A (Pub. 51).

You may have to deposit taxes using EFTPS. You must use EFTPS to make deposits of all depository tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes) you incur in 2004 if you deposited more than $200,000 in federal depository taxes in 2002. If you first meet the $200,000 threshold in 2003, you must begin depositing using EFTPS in 2005. Once you meet the $200,000 threshold, you must continue to make deposits using EFTPS in later years even if subsequent deposits are less than the $200,000 threshold.

If you must use EFTPS but fail to do so, you may be subject to a 10% penalty.

If you do not have to use EFTPS because you did not meet the $200,000 threshold, you can voluntarily make deposits using EFTPS. If you are using EFTPS voluntarily, you will not be subject to the 10% penalty if you make a deposit using a paper coupon.

For information about EFTPS, access the IRS website at www.eftps.gov, or see Publication 966, Electronic Choices for Paying ALL Your Federal Taxes.

To enroll in EFTPS, call one of the following phone numbers.

Or to enroll online, visit www.eftps.gov.

By January 31, you must furnish each employee a Form W–2 showing total wages for the previous year and total income tax and social security and Medicare taxes withheld. However, if an employee stops working for you and requests the form earlier, you must give it to the employee within 30 days of the later of the following dates.

See Form W–2 under Information Returns in chapter 2.

If you are responsible for withholding, accounting for, depositing, or paying withholding taxes and willfully fail to do so, you can be held liable for a penalty equal to the withheld tax not paid. A responsible person can be an officer of a corporation, a partner, a sole proprietor, or an employee of any form of business. A trustee or agent with authority over the funds of the business can also be held responsible for the penalty.

Wages paid to aliens admitted on a temporary basis to the United States to perform farm work (also known as H-2(A) visa workers) are exempt from FUTA tax. However, include your employment of these workers and the wages you paid them to determine whether you meet either test above.

Payments in kind for farm labor are not cash wages. Do not count them to figure whether you are subject to FUTA tax or to figure how much tax you owe.

The gross FUTA tax is 6.2% of the first $7,000 cash wages you pay each employee. However, you are given a credit of up to 5.4% for the state unemployment tax you pay. The net tax rate, therefore, can be as low as 0.8% (6.2% - 5.4%). If your state tax rate (experience rate) is less than 5.4%, you may still be allowed the full 5.4% credit.

If you do not pay the state tax, you cannot take the credit. If you are exempt from state unemployment tax for any reason, the full 6.2% rate applies. See the instructions for Form 940 for additional information.

For more information on FUTA tax, see Circular A (Pub. 51).

Report FUTA tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. The 2003 form is due February 2, 2004, (or February 10, 2004, if you deposit the tax on time and in full).

You can use Form 940–EZ, a simplified version of Form 940, if you meet all the following tests.

If at the end of any calendar quarter you owe, but have not yet deposited, more than $100 in FUTA tax for the year, you must make a deposit by the end of the following month. If the undeposited tax is $100 or less at the end of a quarter, you do not have to deposit it. You must add it to the tax for the next quarter. If the total undeposited tax is more than $100 at the end of the next quarter, a deposit will be required. If the total undeposited tax at the end of the 4th quarter is $100 or less, you can either make a deposit or pay it with your return by the February 2, 2004 due date.

As this publication was being prepared for print, the Treasury Department proposed new rules that would provide an additional exception to the FUTA deposit requirements for employers. For more information about this and other important tax changes, see Publication 553, Highlights of 2003 Tax Changes.

If you are subject to the electronic deposit requirement, you must use EFTPS to deposit FUTA tax. See Reporting and Paying Social Security, Medicare, and Withheld Income Taxes, earlier, for a discussion of the requirement for making deposits electronically.